Subpart 16.4 - Incentive Contracts (T&M)

[GEO-PCO]

Due to the challenges with staffing in the area, I would like to incorporate some form of incentive on an A&AS T&M contract.  “If the contractor is capable of maintaining 90% of its staff for the year, the Government may increase the contract fee up to 1.5%.”  For example: If the negotiated fee is 8.5% and the contractor is able to sustain a 90% workforce, an additional 1.5% would be added to the following option year (10% = 8.5%+1.5%).

I have read the Time and Material / Incentive Fee contract thread on this site and combed through FAR 16.4.  FAR 16.4 does not provide for an incentive on a T&M contract. Any clear directions or supporting regulations are much appreciated.

[Don Mansfield]

I'm confused. Time-and-materials contract with fee? I thought the hourly rate included profit.

[Retreadfed]

GEO, have you considered FAR 16.102(b)?

[C Culham]

1 hour ago, GEO-PCO said:

Due to the challenges with staffing in the area, I would like to incorporate some form of incentive on an A&AS T&M contract.  “If the contractor is capable of maintaining 90% of its staff for the year, the Government may increase the contract fee up to 1.5%.”  For example: If the negotiated fee is 8.5% and the contractor is able to sustain a 90% workforce, an additional 1.5% would be added to the following option year (10% = 8.5%+1.5%).

I have read the Time and Material / Incentive Fee contract thread on this site and combed through FAR 16.4.  FAR 16.4 does not provide for an incentive on a T&M contract. Any clear directions or supporting regulations are much appreciated.

While one can read FAR part 16 that mixing contract type made pursuant to FAR part 15 is permissible I think your strategy is off base.

T&M by its very definition provides no positive incentive for performance thus depending on the buyers oversight.  Seems like you are trying to incentivize a contractor to do your job.  Maybe you should think of dedicating more personnel to surveillance rather than paying more to the contractor on a hoped for performance.

 

[Vern Edwards]

1 hour ago, GEO-PCO said:

Due to the challenges with staffing in the area, I would like to incorporate some form of incentive on an A&AS T&M contract.  “If the contractor is capable of maintaining 90% of its staff for the year, the Government may increase the contract fee up to 1.5%.”  For example: If the negotiated fee is 8.5% and the contractor is able to sustain a 90% workforce, an additional 1.5% would be added to the following option year (10% = 8.5%+1.5%).

I have read the Time and Material / Incentive Fee contract thread on this site and combed through FAR 16.4.  FAR 16.4 does not provide for an incentive on a T&M contract. Any clear directions or supporting regulations are much appreciated.

See FAR 16.102(b).

Just add an annual award fee for employee retention (no base fee). Nothing in FAR prohibits, but check your agency supplement.

[GEO-PCO]

4 hours ago, Don Mansfield said:

I'm confused. Time-and-materials contract with fee? I thought the hourly rate included profit.

A T&M/LH contract does include a negotiated fee.  My goal is to incentivize the contractor for recruiting and retaining talent during the course of the contract.    

[GEO-PCO]

4 hours ago, Retreadfed said:

GEO, have you considered FAR 16.102(b)?

Yes, I have.  It was referenced in a similar thread.  My legal advisor does not concur and referred me to 16.4.  

[Don Mansfield]

8 minutes ago, GEO-PCO said:

A T&M/LH contract does include a negotiated fee.  My goal is to incentivize the contractor for recruiting and retaining talent during the course of the contract.    

Really? FAR 16.601(b) says:

 

Quote

 

Description. A time-and-materials contract provides for acquiring supplies or services on the basis of—

(1) Direct labor hours at specified fixed hourly rates that include wages, overhead, general and administrative expenses, and profit; and

(2) Actual cost for materials (except as provided for in 31.205-26(e) and (f)).

 

Doesn't say anything about fee. I also looked in both FAR 52.212-4, Alternate I, and FAR 52.232-7 and did not see anything about payment of fee.

[GEO-PCO]

4 hours ago, C Culham said:

While one can read FAR part 16 that mixing contract type made pursuant to FAR part 15 is permissible I think your strategy is off base.

T&M by its very definition provides no positive incentive for performance thus depending on the buyers oversight.  Seems like you are trying to incentivize a contractor to do your job.  Maybe you should think of dedicating more personnel to surveillance rather than paying more to the contractor on a hoped for performance.

 

Perhaps you are misinterpreting my question.  The challenge here is not a matter of lack of Government oversight (doing your job), it is more to incentive the contractor to recruit highly qualified professionals out of state (headhunters, relocate bonuses, etc...) and incorporate creative retention practices.

Although this is not a challenge for larger cities, it is an obstacle for smaller rural areas. 

[GEO-PCO]

8 minutes ago, Don Mansfield said:

Really? FAR 16.601(b) says:

 

Doesn't say anything about fee. I also looked in both FAR 52.212-4, Alternate I, and FAR 52.232-7 and did not see anything about payment of fee.

I stand corrected Sir.  Profit not fees.  

[Vern Edwards]

GEO asks a question, gets in an argument about fee versus profit, and ignores the only post that offers a viable answer.

Not too swift.

[C Culham]

12 hours ago, GEO-PCO said:

Perhaps you are misinterpreting my question.  The challenge here is not a matter of lack of Government oversight (doing your job), it is more to incentive the contractor to recruit highly qualified professionals out of state (headhunters, relocate bonuses, etc...) and incorporate creative retention practices.

Although this is not a challenge for larger cities, it is an obstacle for smaller rural areas. 

I thought I did, and still think I do.   My continued thoughts....

So as has been discussed so far it would seem you anticipate negotiating under FAR part 15 as you think combining contract types is okay.  You are assuring your oversight is spot on yet you want to incentivize the contractor to, in my view, do what you want  the contractor to do in the first place, doing something and paying for it while the contractor performs it with "highly qualified professionals" and "have creative retention practices".   

Okay so is this need implied in the IGE where you would expect paying a higher price?   

Is your solicitation then built a SOW (or PWS?) that provides that this is the expectation?

From there are your evaluation factors built to where you will evaluate this top priority and expect and promote a tradeoff of this need versus price?

And in the end will the negotiated final contract, based on all this, have adjusted wording (not a simple insertion of the contractors proposal) that provides for the contractors promise of highly qualified professionals and creative retention practices?

Finally during administration and oversight if there are barriers that somehow cause  your buyoff (award) that you have the perfect contract are you willing, and are you setting the stage that the contractor will be willing as well, to adjust the contract as necessary to get the work done using their best efforts to also have and retain the professionals needed? 

Bottomline you already know your need I am just lost that you have to add some element to get what you are supposedly already would be paying for. 

My thoughts to an extent are extended from this document "The Time-and_Materails Contract: the Time has come for a long, hard look" by Vernon Edwards.  I hope I have  given justice to the article via my interpretation in replying to this thread, if not that is okay, but it still might be a good read for you.  You can find the document here -  https://www.wifcon.com/anal/analtandm2.doc - or by internet search on the title.

 

[formerfed]

Here’s an idea - use an award term contract.  You could employ a variety of factors including employee retention where a contractor can earn additional periods of performance for meeting or exceeding goals.  Here’s an article Vern Edward’s wrote  Award term

Theres data showing many companies are motivated more by continual performance than greater profit/fee.

[joel hoffman]

3 hours ago, formerfed said:

Here’s an idea - use an award term contract.  You could employ a variety of factors including employee retention where a contractor can earn additional periods of performance for meeting or exceeding goals.  Here’s an article Vern Edward’s wrote  Award term

Theres data showing many companies are motivated more by continual performance than greater profit/fee.

I agree with you. 

[Don Mansfield]

On 8/9/2024 at 10:46 AM, Vern Edwards said:

See FAR 16.102(b).

Just add an annual award fee for employee retention (no base fee). Nothing in FAR prohibits, but check your agency supplement.

Wouldn't you want to put some type of constraint on hours or price, above which the incentive would no longer apply? For cost reimbursement contracts, a cost incentive or constraint is required if the contract is going to contain an incentive on something other than cost. Given the "best effort" nature of the T&M contract, I would think you'd want the same type of safeguard.

[Vern Edwards]

16 hours ago, Don Mansfield said:

Wouldn't you want to put some type of constraint on hours or price, above which the incentive would no longer apply? For cost reimbursement contracts, a cost incentive or constraint is required if the contract is going to contain an incentive on something other than cost. Given the "best effort" nature of the T&M contract, I would think you'd want the same type of safeguard.

I presume you are referring to this:

Quote

16.402-1 Cost incentives. (a) Most incentive contracts include only cost incentives, which take the form of a profit or fee adjustment formula and are intended to motivate the contractor to effectively manage costs. No incentive contract may provide for other incentives without also providing a cost incentive (or constraint).

I do not think a cost constraint makes sense in the case of a T&M contract with an award fee incentive for employee retention.

The purpose of a cost incentive or constraint is to prevent the contractor from running up costs in order to pursue a performance incentive. That would not occur under a T&M contract with an award fee incentive on employee retention, because the contractor is paid for hours worked performing specific tasks at fixed hourly rates. The contractor is not entitled to payment for other work. I  suppose a contractor might try to retain employees by allowing them to work slowly in order to improve their wages by running up their hours. But I believe that proper government surveillance should be able to prevent such a scam. And the contractor might be threatened by possible whistleblowers.

Plus, T&M contracts have a ceiling price.

What do you think?

[C Culham]

On 8/9/2024 at 8:35 AM, GEO-PCO said:

I would like to incorporate some form of incentive on an A&AS T&M contract. 

 

On 8/9/2024 at 10:10 AM, Retreadfed said:

GEO, have you considered FAR 16.102(b)?

 

On 8/9/2024 at 2:48 PM, GEO-PCO said:

Yes, I have.  It was referenced in a similar thread.  My legal advisor does not concur and referred me to 16.4.  

 

21 hours ago, formerfed said:

use an award term contract.

 

16 hours ago, Don Mansfield said:

Wouldn't you want to put some type of constraint on hours or price, above which the incentive would no longer apply?

15 hours ago, Vern Edwards said:

What do you think?

As I continue to read the thread here is where I think iI am at.   

The Original Poster (OP) wants to add a monetary incentive to a T&M contract to get the contractor to do something they should already be motivated to do by the wording of the proposed contract.  The OP's legal advisor thinks that an incentive is not allowed.   I think I could get there as well because in a narrow read of FAR 16.102(b), specifically "Contract types not described in this regulation shall not be used, except as a deviation under subpart 1.4." and that FAR 16.4 does not carry named T&M incentive contract type of any kind.  I say this as it seems the general conclusion supported in other discussions and the FAR itself is that a T&M contract is neither a fixed price nor a cost contract.    The OP has come to Forum to find out what incentive might work and proposes a Incentive Fee Contract.  Responses suggest Fee or even price might be difficult due to the nature of a T&M contract.  Award Term has been proposed and seems to have been bypassed as the discussion is trying to find a way to (or not to) include a monetary incentive.  However Award Term actually might be the appropriate course due to the view of "legal advisor" which suggest the possiblity of the OP having to to do a "deviation" for an incentive fee which leads the OP to not only have to tackle supporting a fee incentive as a deviation but also an incentive regarding "performance" "cost" (and price?) and "delivery"  would require the OP to have to seek a Determination and Findings from the Head of Contracting Activity ( Ref. FAR 16.102(d) and FAR 16.401(d)).

I have obviously thought the idea of a monetary Incentive was not the best course and would agree Award Term might be the best way to tackle the problem.  The question would be what if any contraints are there with regard to a Award Term in the OP's agency's FAR supplement as I find none in the FAR itself. 

[Vern Edwards]

2 hours ago, C Culham said:

The OP's legal advisor thinks that an incentive is not allowed.   I think I could get there as well because in a narrow read of FAR 16.102(b), specifically "Contract types not described in this regulation shall not be used, except as a deviation under subpart 1.4." and that FAR 16.4 does not carry named T&M incentive contract type of any kind.

16.102(b):

Quote

Contracts negotiated under part 15 may be of any type or combination of types that will promote the Government's interest, except as restricted in this part (see 10 U.S.C. 3321(a) and 41 U.S.C. 3901). Contract types not described in this regulation shall not be used, except as a deviation under subpart 1.4.

Emphasis added.s

Well, FAR describes both T&M and award fee, and FAR says you can use any type or combination of types described in FAR. If adding an incentive to a type would create a type "not described in thi regulation" we would never have had the fixed-price with award fee, which was in use long before it was described in FAR. 

2 hours ago, C Culham said:

Award Term has been proposed and seems to have been bypassed as the discussion is trying to find a way to (or not to) include a monetary incentive.  However Award Term actually might be the appropriate course...

Where does the FAR (48 CFR Chapter 1) describe "award term" (or award-term) contracts? Where does it describe "award term" at all? (Only in 48 CFR Chapter 15.)

Everyone is entitled to an opinion, but the OP's "legal advisor"𑁋and anyone else who thinks a T&M with an incentive would violate FAR 16.102𑁋is badly confused. We'd never get anywhere through that kind of regulatory interpretation. And see the "guiding principles".

But that's not to say that a T&M with an incentive is necessarily a good idea or that it would work. It's just an idea. You can't know until you try.

And how do we know that no one has ever used an incentive with a T&M? Does anyone really think that no one has at least thought about it before?

See this: https://www.wifcon.com/discussion/index.php?/topic/3310-time-and-material-incentive-fee-contract/

[C Culham]

1 hour ago, Vern Edwards said:

16.102(b):

Yes, I already implied same in a previous post as doing so is predicated on using FAR part 15 processes.

1 hour ago, Vern Edwards said:

Where does the FAR (48 CFR Chapter 1) describe "award term" (or award-term) contracts?

Well, " If adding an incentive type to a type would create a type "not described in the regulation" we would never have" award term would we?

 

1 hour ago, Vern Edwards said:

Everyone is entitled to an opinion, but the OP's "legal advisor"𑁋and anyone else who thinks a T&M with an incentive would violate FAR 16.102𑁋is badly confused. We'd never get anywhere through that kind of regulatory interpretation. And see the "guiding principles".

Did I say I agreed with the legal advisor?

Point, counterpoint aside...

1 hour ago, Vern Edwards said:

But that's not to say that a T&M with an incentive is necessarily a good idea or that it would work. It's just an idea. You can't know until you try.

Agreed.  I just have trouble seeing the award fee as the incentive for a T&M when the fee would be tied to or somehow is intended to enhance the contractor maintaing 90% of its staff!    What if the contractor could perform the work satisfactorily with 50% of its staff?  Award fee and T&M just seem counter intuitive to me.

[Vern Edwards]

Just now, C Culham said:

I just have trouble seeing the award fee as the incentive for a T&M when the fee would be tied to or somehow is intended to enhance the contractor maintaing 90% of its staff!    What if the contractor could perform the work satisfactorily with 50% of its staff?  Award fee and T&M just seem counter intuitive to me.

Well, maybe your intuition needs some more thoughts. Here are some:

On 8/9/2024 at 4:05 PM, GEO-PCO said:

The challenge here... is more to incentive the contractor to recruit highly qualified professionals out of state (headhunters, relocate bonuses, etc...) and incorporate creative retention practices.

Although this is not a challenge for larger cities, it is an obstacle for smaller rural areas. 

The OP understands their agency's needs and the difficulties in meeting them better than we do. The OP has an advisory and assistance contract, wants the contractor to make an extra effort to recruit top notch people willing to come to a rural area and work to retain them. Better people might be more efficient in providing advice and assistance. The OP knows that's a challenge, the contract apparently does not require the contractor to make that extra effort, and so the OP thinks an incentive might encourage the contractor to do so.

Hiring and retaining top notch people could, in theory, reduce the government's long-term costs under a T&M advisory and assistance contract. Think about it.

The whole idea behind incentives is to give the contractor a reason to do something they otherwise might not do.

If any contract could use an incentive to improve efficiency it's a T&M.

On 8/9/2024 at 9:35 AM, GEO-PCO said:

Any clear directions or supporting regulations are much appreciated.

We have reviewed the regs. I disagree with the OP's legal advisor, who clearly does not know what they're talking about if they think FAR 16.102 precludes the use of an incentive on a T&M contract.

Some of us have made suggestions. One is for an award term incentive. Another is for an award fee incentive. A third is for both.

There's a lot of guidance about award fee, but relatively little about award term.

The OP can now go and think it over, do some more research, try to advise their legal advisor, talk with the contractor, and develop some ideas of their own.

[Don Mansfield]

20 hours ago, Vern Edwards said:

I presume you are referring to this:

I do not think a cost constraint makes sense in the case of a T&M contract with an award fee incentive for employee retention.

The purpose of a cost incentive or constraint is to prevent the contractor from running up costs in order to pursue a performance incentive. That would not occur under a T&M contract with an award fee incentive on employee retention, because the contractor is paid for hours worked performing specific tasks at fixed hourly rates. The contractor is not entitled to payment for other work. I  suppose a contractor might try to retain employees by allowing them to work slowly in order to improve their wages by running up their hours. But I believe that proper government surveillance should be able to prevent such a scam. And the contractor might be threatened by possible whistleblowers.

Plus, T&M contracts have a ceiling price.

What do you think?

If the direct labor is not for the work required to increase retention (i.e., it's for performing the contract requirements), then I agree that you don't need a constraint.

[C Culham]

19 hours ago, Vern Edwards said:

Well, maybe your intuition needs some more thoughts

Thanks Vern, but not sold completely yet.  Rhetorical thoughts offered just because otherwise we can move on.....

19 hours ago, Vern Edwards said:

the contract apparently does not require the contractor to make that extra effort

In part my point, could not the contract otherwise address the whole retention matter?   I think the contract could.

 

19 hours ago, Vern Edwards said:

If any contract could use an incentive to improve efficiency it's a T&M.

Yes, but is not the efficiency directly related to the administration of a T&M contract?   With an award fee plan the effort is doubled.   In part this is the uneasy feeling I have and will even apply it to the instant matter.   The OP feels contractors will not get and pay notch people and retain them by experience, or intuition?  If by experience why not?  Government too cheap to pay a higher preimum for hours for working in the outback which then filters down to what the contractor does?    Award fee just feels like an easy fix without considering how it complicates the oversight of a T&M contract.  Yes I know it complicates oversight of any contract, I am guessing that is why it would take HCA approval to do so.

Some how I am just stuck on this "A time-and-materials contract provides no positive profit incentive to the contractor for cost control or labor efficiency. (FAR 16.601(c)(1)).   And the fix is  adding an award fee?  I just don't think it is the magic bullet to improve efficiency in the matter of employee retention.  If it is the magic bullet why would not every contract that specifies "key personnel" just add an award fee?

Just for reference for the OP and even others that contemplate an award fee on a T&M contract for a rural area these documents might be of assistance.   Afterall I suspect USAID and Air Force have some pretty rural areas.

https://2017-2020.usaid.gov/sites/default/files/documents/1868/302saa.pdf

https://www.acqnotes.com/Attachments/Air Force Award Fee Guide March 2002.pdf

[Vern Edwards]

1 hour ago, C Culham said:

Some how I am just stuck on this "A time-and-materials contract provides no positive profit incentive to the contractor for cost control or labor efficiency. (FAR 16.601(c)(1)).   And the fix is  adding an award fee?  I just don't think it is the magic bullet to improve efficiency in the matter of employee retention.  If it is the magic bullet why would not every contract that specifies "key personnel" just add an award fee?

I think it's a valid question whether performance incentives works at all. But the OP wanted some ideas, and I have him one. Someone else suggested that award term might work.

In conclusion, I don't think there is any reason that you cannot use an incentive with a T&M contract, and I find the idea intriguing. If I were a CO tody I would want to try it. The legal advisor's objection is b.s.

Whether an incentive would solve the problem can only be determined by giving it a try. So, why not?

Signing off this thread.

[Retreadfed]

On 8/9/2024 at 5:48 PM, GEO-PCO said:

My legal advisor does not concur and referred me to 16.4.  

Does not concur with what?  Also, what is the reason for the non-concurrence?

[Don Mansfield]

On 8/11/2024 at 9:19 AM, Vern Edwards said:

We have reviewed the regs. I disagree with the OP's legal advisor, who clearly does not know what they're talking about if they think FAR 16.102 precludes the use of an incentive on a T&M contract.

Additionally, I don't think using a noncost incentive would change the contract type from T&M to something else. For example, the contract type remains the same when using noncost incentives in firm-fixed-price contracts and fixed-price contracts with economic price adjustment. See FAR 16.202-1 and FAR 16.203-1(b).